This CDS report was written by Markit’s Gavan Nolan
European credit indices widened today, ending a four-day winning streak. The Markit iTraxx Europe index closed at 115bp, some 6bp wider than Wednesday. Events across the Atlantic provided the catalyst in a market that was already losing momentum. The much anticipated US non-farm payrolls report showed the economy losing 467,000 jobs in June, far higher than expected. The unemployment rate continued to rise, and at 9.5% is the highest for 26 years. Average hourly earnings were flat, boding ill for consumer spending. Overall the report was dire, and will only add to the number of investors expecting an anaemic recovery in the second-half of this year.
The bad news was not confined to the US. Eurozone unemployment in May rose to 9.5% from 9.3% in April, higher than the 9.4% expected and a 10-year high. The lagging nature of the labour market means that the number of jobless is set to rise this year and maybe into next year. The UK, expected by many to be the first out of recession, received a blow today after the CIPS/Markit Construction PMI – a key forward-looking indicator – showed a worsening in the rate of contraction in June. Previous months had suggested the decline in the sector was levelling off. The survey showed jobs continuing to be shed at a considerable rate, indicating further rises in unemployment in the months ahead. Read more
Totemic UK hedge fund manager and activist investor par excellence, The Children’s Investment Fund Management, run by Christopher Hohn, has indeed posted its fourth consecutive year of double-digit growth: revenue was lifted more than 70 per cent to £574m from £333m a year previously, according to the 2008 accounts, filed this week at Companies House. Read more
As in ‘mutually assured destruction’…
John Kemp at Reuters makes the point that the “unstable stability,” whereby China can break the dollar’s reserve currency status at any time – but only at the risk of crystallising huge losses on its stockpile of US debt – has become the foreign exchange version of the Cold War stalemate. Read more
No, that’s not a reference to the European Union’s diverse collection of fonts and languages. That’s actually the twitter challenge Sweden has set itself after kicking off its six-month European Union presidency 0n Wednesday.
From the presidency’s website: Read more
News this week that California would begin issuing IOUs helped crystallise the enormity of the fiscal crisis confronting the state.
That the IOUs are now feeding into banks should serve as a reminder of just how intertwined the fortunes of the state and the financial sector really are. Read more
US District judge David Godbey, who is presiding over the civil case brought by the SEC against Sir Allen Stanford, has denied the Texan businessman’s petition for the court to partially rescind a freeze on his assets.
Sir Allen made the request in April, saying he needed $10m* to be able to pay for legal representation. At the time, he had already lost one lawyer – Charles Meadows – who told the Financial Times that he quit because the financier “didn’t have access to funds.” Read more
There we said it. Read more
US non-farm payrolls as reported on Thursday (H/T Josh Noble):
The annual Global Custodian annual survey of prime brokers is out, offering a qualitative, as well as quantitative, assessment of the world’s foremost prime brokerage firms.
The grip of the old order – the Goldman/Morgan “duopoly” – has, it seems, significantly loosened. Read more
US non-farm payrolls fell by 467,000 in June, according to a worse-than-expected report released on Thursday by the US Labor Department.
Economists in a Reuters survey had forecast that 363,000 jobs would be lost in the month. Read more
On FT Alphaville this morning,
- Exclusive: Oil rogue trader at PVM. Read more
We have confirmation of the PVM rogue broker story via an e-mailed statement from the company to the wires.
The flashes from Dow Jones read: Read more
Live markets commentary from FT.com
London-based oil brokerage PVM Oil Associates is understood to have parted company with one of its senior long-standing derivatives brokers after allegedly detecting a large unauthorised Brent ICE position on his book.
While the oil market in London was abuzz with the story on Thursday, hard details were still thin on the ground. However, the wayward trade is thought to have involved anywhere between 1,800 and 9,000 lots of Brent ICE futures, which at the top end would be equal to as much as $630m or 9m barrels of oil. Read more
Data from CMA’s latest global sovereign credit risk report (H/T Alea).
The world’s safest sovereigns (implied by current CDS spreads run through CMA’s own proprietary rating model): Read more
This is Frank Timis. Read more
The spat between Janet Tavakoli and Nassim Nicholas Taleb refuses to go away.
The Black Swan man has updated his notes to the copy of the GQ profile posted on his website: Read more
Elsewhere on Thursday,
- Small lessons from a big crisis. Read more
Comment, analysis and other offerings from Thursday’s FT,
John Gapper: Madoff’s sentence is necessary and rare
There was a moment during Bernard Madoff’s sentencing hearing in Manhattan on Monday when it became obvious that the 71-year-old fraudster was going down for a very, very long time indeed.The 71-year-old fraudster’s conduct was indefensible and he deserved what he got. But the case was unusual. The question is whether Bernard Madoff’s spectacular sentence should become the benchmark for future cases of corporate fraud. Read more
Breaking pre-market news on Thursday,
- Intermediate Capital announces rights issue to raise net £351m — statement. Read more
The global downturn appeared close to a bottom on Wednesday after manufacturing figures from across the world suggested that recession in all big economies was receding. The news comes after nine months of sharp contraction in global manufacturing output and a dramatic plunge in world trade. The June data came from a series of surveys of purchasing managers in the manufacturing sector. Although headline figures were positive only in China, the manufacturing output element of the data was positive in the US, the UK and Japan as well.
Rio Tinto’s $15.2bn rights offer, the fifth-biggest on record, on Thursday generated strong demand from UK investors who snapped up almost 97% of the 524m new shares offered in London at £14 per share – raising about £7.1bn, more than a fifth of its market cap. Rio was also selling 150m new shares in Australia at $A28.29 per share. China’s state-controlled Chinalco confirmed it had taken up its full entitlement to Rio’s issue to maintain its 9% stake in the miner, despite the recent failure of their investment deal.
The prospect of a bidding war for T-Mobile UK loomed on Wednesday night as it emerged that Telefónica of Spain is considering a bid for the UK’s fourth largest mobile phone operator. Telefonica fears competitive threats to O2, its leading UK mobile business, if Vodafone buys T-Mobile UK from Deutsche Telekom. Separately, it also emerged that France Telecom is considering a joint venture between Orange, its UK mobile business, and T-Mobile UK.
Stephen Hester, the chief executive of Royal Bank of Scotland, is to defer part of his controversial £9.6m pay package for an extra two years after bowing to pressure from investors. Hester, who is paid a £1.2m base salary, has been criticised by unions and MPs for accepting such a large overall package when RBS is a loss-making bank 70% owned by the taxpayer.
Standard Chartered and ANZ have both entered exclusive talks to acquire separate parts of the Asian retail and commercial assets being sold by Royal Bank of Scotland. Both bidders were last week granted preferred bidder status for different RBS assets, in effect giving them up to 45 days to seal a deal. The move means that StanChart is now in pole position to acquire RBS units being sold in China, India and Malaysia, while ANZ is in line for assets in HK, Taiwan, Singapore, Vietnam and Indonesia.
Shares in Commerzbank gained 18.6% to €5.26 on Wednesday after the ECB said it had no objections to Germany’s “bad bank” plan. The plan, which is due to be finalised in parliament on Friday, would allow German banks to offload toxic assets from their balance sheets. Analysts said that under the plan, banks – in particular Commerzbank – might be able to make significant accounting gains on losses already written down.
SABMiller, the international brewer, on Wednesday announced one of South Africa’s biggest black empowerment deals, disclosing plans to sell a R6bn ($750m) chunk of its local subsidiary to employees, a charitable foundation and store owners who sell the company’s products. SAB Miller, known for pioneering affirmative action policies under the apartheid regime, is offering 4% of its South African subsidiary SAB to its 9,000 local staff, of whom 80% are black.
California, which is teetering on the brink of fiscal collapse, has printed the first batch of about 30,000 IOUs to be issued to people awaiting income tax rebates on Thursday unless Arnold Schwarzenegger, the governor, manages to strike a last-minute budget deal with the state government, reports the FT. The state is preparing to issue IOUs equivalent to a month’s funding – or $591m – for programmes that provide supplemental income to the elderly. Reuters reports that Schwarzenegger has declared a fiscal emergency.
In a move hailed as a victory by activist investors, the SEC on Wednesday scrapped a controversial 72-year-old rule that allowed broker-dealers to vote in corporate director elections on behalf of their clients without specific instructions. The change would apply to director elections held by public companies after Jan 1 and comes amid public anger over lax oversight of companies taking on excessive risk.